In another round of measures to boost manufacturing, revive private investment and growth, the government of India cut corporate tax to 22 per cent for companies that do not avail any tax incentive.
Effective corporate tax cut will, however, be 25.17% after cess and surcharges.
New manufacturing companies have to pay corporate tax rate of only 15 percent.
Until now, business income was taxed at 30% without cess and surcharge and new manufacturing companies were taxed at 25%.
Markets erupted in joy over this rare fiscal step ahead of Diwali, the festival of lights and fireworks, which is just a week away.
The new fiscal measures sent the Sensex soaring by 1,921 points, the biggest intra-day jump in a decade.
Prime Minister Narendra Modi called it a historic move and a win-win for 1.3 billion Indians. It would boost his flagship Make in India scheme and also draw investments, Modi tweeted before leaving for the US.
India’s central bank governor Shaktikanta Das called it a bold measure which will augur well for the slowing economy.
Revealing the new fiscal measures ahead of her meeting with state ministers on goods and services tax, Finance Minister Nirmala Sitharaman said the government would lose some 1.45 trillion rupees due to the tax cuts.
Such losses have to be seen from a broader perspective as the cuts may prompt businesses to invest more when the economy is bottoming out after a six-year low growth rate of 5% in the June quarter, she said.
In another relief, the minister said listed companies which have announced buyback of shares prior to July 5, will not be charged with super rich tax.